Australia has been warned not to follow suit after Britain and 11 nations toughened their stance against Israel with sanctions on settlements in the West Bank.

Britain, France and Canada have announced they will ban trade where Israeli “settler terrorists” are carrying out “ethnic cleansing” of Palestinians while the Israeli government “turned a blind eye”.

They were joined by the foreign ministers of nine other countries, including Denmark, Norway, Poland, Spain and Sweden, in a statement reaffirming ‌support for a negotiated two-state settlement.

British Foreign Secretary Ed Miliband said the UK would ban imports of all goods from the settlements and some services, including financing, construction, infrastructure, real estate and advertising for settlements.

Miliband said he felt “a deep sense of shame about what has unfolded in Palestine under the eyes of the international community”.

“The British government agrees that there is ethnic cleansing of Palestinians in areas of the West Bank, perpetrated by settler terrorists,” he said.

Miliband said there had been “houses bulldozed, roads and public infrastructure destroyed, families displaced from their homes.”

Israeli soldiers at the inauguration of a new Israeli settlement the West Bank. Photo: AAP

Israel’s ambassador to Australia has reportedly cautioned the Albanese government against following Britain’s move.

“It would be a deep mistake to take steps in such a direction,” Dr Hillel Newman told The Australian, adding that anti-Israel protesters had been “brainwashed”.

Foreign Affairs Minister Penny Wong said on Tuesday that Australia was not pursuing similar bans “at this time”.

Israel reacted to the sanctions with fury and said it would close Britain’s consulate in East Jerusalem.

“The British move is morally distorted, and constitutes blatant interference in the affairs of a sovereign ‌state and its electoral process,” Israeli Foreign Minister Gideon Saar said.

Saar said Miliband’s accusations of ethnic cleansing were “outrageous lies”.

The trade measures are the latest in a series of actions targeting Israel’s settlement policy and underscore its growing diplomatic isolation among some of its traditional allies.

Israel’s conduct towards the Palestinians under Prime Minister Benjamin Netanyahu has increasingly been criticised by Britain and other Israeli allies.

Under Netanyahu’s ultranationalist government, settlement construction in the West Bank has surged. The international community overwhelmingly considers such construction to be illegal and an obstacle to peace.

Britain, a long-time ally of Israel, recognised Palestinian statehood last year to try to revive dwindling efforts to achieve a two-state solution.

The centre-left Labour government has previously sanctioned some Israeli settlers and illegal outposts over violence against Palestinians and illegal development in the West Bank.

British Prime Minister Andy Burnham has voiced concerns about the E1 settlement project approved by Israel, which would effectively cut the territory in two.

Palestinians and rights groups say it could destroy hopes for a future Palestinian state.

A tougher line on settlements is likely to be welcomed by many Labour voters and MPs, who have urged the government to go further in sanctioning Israel and supporting the Palestinians.

But some Labour members expressed concern that the move could boost support for Netanyahu, who faces a tough battle for re-election in October, or lead to attacks on British Jews.

Israeli President Isaac Herzog said the ban would be “a grave miscalculation, a decision that will fall on the wrong side of history”.

“In the current context, it would be a gross interference in the democratic elections of a sovereign nation,” he said.

The move was also criticised by US ambassador to Israel Mike Huckabee, who said it was “discrimination against the Jewish people.”

He said Britain could face “repercussions or retaliations” from the US if it imposed the sanctions.

-with AAP/AP